Berlusconi Won't Completely Yield

Today's events will be brought to you by the number 7. It's an important number according to the mystic rules of life: seven seas, seven deadly sins, seven brides for seven brothers (says Peter Cook).

Everyone is now hollering because Italian 10-year yields topped 7%, hitting 7.3%. The reactions range from the simplistic (borrowing costs will be high) to the historical (Portugal, Ireland and Greece stayed above 7.3% after hitting it and got bailouts) to the alarmist (euro/Italy/everyone is toast).

The interesting talk on Twitter is that nobody believes Silvio Berlusconi will go quietly, despite his pledge to resign.

@Nouriel: Silvio "Ponzi" "Nero" Berlusconi: dithering while Rome is burning. He would rather let Italy burn to the ground rather than leave power

Many had already accepted the collapse of Italy. On Tuesday, Barclays said "(h)istorical experience suggests that the self-reinforcing negative market dynamics that now threaten Italy are very difficult to break. At this point, Italy may be beyond the point of no return."

We'll get lots of talk about the markets punishing Italy, like it punished Greece and the U.S. financials back in 2008. That's what happening for sure, but the market punishes bad investments. The fact that it gets spooked by politicians is more of a worry.

No country right now can boast a government that can reassure investors it will do the right thing for its own or any other economy.

Italy will get a hard time for corruption, just as Greece and Portugal got a hard time for being Southern European and somehow less industrious. But look at what other countries are doing and it's hard to find any leadership that can bring Europe or the global economy out of this mess.

Germany's parliament keeps setting up hurdles for bailout approval even though it has no intention on risking its weak-currency export advantage by exiting the euro. The UK's coalition is committed to only growth-sapping austerity because it doesn't want to be accused of flip-flopping. Congress and the White House are more committed to pushing each other's approval ratings to zero than passing legislation.

We've known about Italy's troubles for a while. If it's politics that trigger bond losses more than budget figures, then more than just the euro is doomed.